The Uneven Impact on Households
Edited by Ray Forrest and Ngai-Ming Yip
Chapter 3: The Credit Crunch in the UK: Understanding the Impact on Housing Markets, Policies and Households
Peter Williams INTRODUCTION In many minds the UK has been at the heart of the global financial crisis (GFC), alongside the USA. This connection is at two levels. First, it is viewed as a country with high house prices, over-extended consumer credit, a highly developed mortgage market with a diversity of products and a high level of homeownership (though it peaked at 71 per cent in the early 2000s and is now down to 68 per cent, putting the UK in the middle of the distribution of developed countries by level of homeownership). Second, the UK has a globally very active financial services industry with ‘cutting-edge’ financial innovation. Indeed, the UK government worked hard to establish the UK as the world leader in financial services, and many segments of that industry, such as hedge funds, are headquartered in the UK. In European terms and before the GFC, the UK was the largest securitization market in terms of issuance and the largest mortgage market at over £1 trillion outstanding loan debt and a deeply competitive mortgage market. In that sense it was both connected and vulnerable. The wider context of the GFC will be familiar to many, although there are divergent views of both causes and effects. In the simplest of terms, huge current-account surpluses were being generated in China and elsewhere as a consequence of ‘the long boom’ in the USA and other countries, which in turn were building large current-account deficits. Interest rates were driven to historically low levels...
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